Explanation:
In futures markets with physical delivery, the clearinghouse acts as the central counterparty and coordinates the settlement process between long and short positions. When a long position holder (like Jack Johnson) is due to receive physical delivery, the clearinghouse:
Option A is correct because the clearinghouse's role includes coordinating settlement between the long position (Johnson) and any eligible settling shorts. The clearinghouse handles this coordination automatically - Johnson doesn't need to contact them (making B incorrect), and he doesn't deal directly with the original counterparty (making C and D incorrect).
The clearinghouse's novation process means all original counterparty relationships are replaced by the clearinghouse as the central counterparty to both sides.
Ultimate access to all questions.
Jack Johnson is going to receive a physical commodity from a settling long futures trade. Which of the following statements best describe the role of Johnson and the clearinghouse in this process?
A
The clearinghouse will coordinate Johnson's settlement with any eligible settling shorts.
B
Johnson will have to contact the clearinghouse to coordinate with any eligible settling short.
C
Johnson will have to close his position with the original counterparty.
D
The clearinghouse will coordinate Johnson's settlement with the original counterparty only.
No comments yet.